Fixed Severance Amount: A Contract is a Contract

The Employment Standards Code provides that an employee cannot receive less than the prescribed amount of severance in the event of without-cause termination. Courts have built a body of common law holding that those standards are indeed only minimal and that employees are often entitled to significantly more. Determination of the proper amount is based on a plethora of factors like employment duration and the level of responsibility.

In most circumstances, parties enter into employment agreements. Sometimes such contracts specify that the employee will receive severance “as required at law”. The amount to which the employee will be entitled in such a circumstance will need to be ascertained by doing a contextual analysis based on common law principles. Other times, the parties will agree that the employee will receive a fixed sum of money if terminated without cause.

The Alberta Court of Appeal in a recent caseheld that if the parties agree to a fixed amount of severance (say, equal to 1 year’s salary), the employee will be entitled to that specific amount.

It works both ways. The employee will not be able to claim that the fixed amount is too low relative to common law. As noted, the Code, and not common law, sets the minimum standards. Likewise, the employer cannot avoid its contractual obligations by arguing that the severance amount is too high either, as neither the Code nor the common law provides maximum standards.

With respect to terms fixing the amount of severance, “a contract is a contract”.

Invitation for Discussion:

Our litigation lawyers are skilled in employment law. If you would like to discuss this blog in greater detail, or any other business litigation matter, please do not hesitate to contact Mohamed Amery or one of the other lawyers in the Business Litigation Group at Shea Nerland LLP.

Disclaimer:

Note that the foregoing is for general discussion purposes only and should not be construed as legal advice to any one person or company. If the issues discussed herein affect you or your company, you are encouraged to seek proper legal advice.